On Thursday, January 5, the Federal Trade Commission (FTC) announced a new proposed rule that would ban employers nationwide from using non-compete clauses.
These clauses, which are often inserted into employment agreements, typically prohibit the employee from leaving the employer’s business and, for a 1- or 2-year period, working for any other business that competes with the employer. According to the FTC, the use of non-compete clauses hampers innovation, prevents entrepreneurs from starting new businesses, and suppresses wages for over 30 million Americans by over $300 billion per year. That’s why California and several other states already outlaw the use of non-compete clauses in most employment agreements. Still others, like Illinois, Massachusetts, and Nevada, outlaw their use wither lower-wage workers only.
To address these problems, the FTC’s proposed rule would make it illegal in every state for an employer to: (1) enter into, or attempt to enter into, a non-compete clause with a worker, (2) maintain a non-compete with a worker, or (3) represent to a worker that the worker is subject to a non-compete. This proposed rule applies to all “workers,” whether they are employees or independent contractors, paid or unpaid. The proposed rule also would require employers to rescind existing non-competes and to inform workers that they are no longer in effect.
Under the FTC’s rulemaking process, the public is invited to comment on the new proposed rule. Comments are due within 60 days of the proposed rule being published in the Federal Register. The FTC will then review the comments and, if warranted, make changes based on the comments before issuing a final rule.
To read the proposed rule and the FTC’s related statement, or to submit a comment once they comment period opens, go here.
